Share Capital

Definition

Share capital refers to the total amount of capital a company raises through various equity financing methods. It forms the foundation of a company's capital structure and represents the amount invested by shareholders in the company.

Origin

The concept of share capital originated with the formation of joint-stock companies, dating back to the 17th century with the Dutch East India Company. As joint-stock companies evolved, share capital became a crucial metric for assessing a company's capital structure.

Categories and Features

Share capital can be divided into common stock and preferred stock. Common stock represents basic shareholder rights, typically including voting rights and dividend entitlements. Preferred stock, on the other hand, has priority over common stock in dividends and liquidation but usually lacks voting rights. Features of share capital include its liquidity, risk, and return potential.

Case Studies

For example, Apple Inc. has a share capital structure that includes a large amount of common stock, allowing shareholders to participate in company decisions and profit distribution. Another example is Berkshire Hathaway, which has different classes of stock in its share capital to cater to various investor needs.

Common Issues

Common issues investors face when analyzing share capital include evaluating its value and understanding how changes in share capital affect a company's financial health. A frequent misconception is confusing share capital with market capitalization; share capital is the total number of shares issued multiplied by their par value, while market capitalization is the total number of shares multiplied by the market price.